What is OPC? Advantages, Procedure of One Person Company: An OPC is a company that has only one person as a member, the revolutionary concept of one person company has been introduced by Section 2(62) of the Companies Act, 2013.
This concept of OPC was first recommended by the expert committee of Dr. JJ Irani in 2005.
An OPC shall have only one member, unlike the traditional manner of having at least two members. Only an individual can form an OPC. The minimum and maximum number of members in an OPC.
There is only one director in OPC; however, it can have more than one director.
OPC under the companies ACT,2013 is a separate legal entity having perpetual succession.
The liability to repay any loan availed by the OPC is limited only to the OPC, unlike a sole proprietorship in which sole proprietor is personally liable.
An OPC enjoys all the benefits of a company and the advantages of a sole proprietorship. It has a separate legal entity distinct from its sole member; therefore, in case of the death of the sole member, the company shall continue its operations. At the time of incorporation, the sole member has to mention the name of his nominee, who in the event of his death or incapacity will become the member of the company.
Advantages & Disadvantages of an OPC
An OPC can be incorporated by filing the e-Form Spice+ along with e-MOA and e-AOA. The process of incorporation of an OPC is the same as any private company however; there are lesser legal requirements in case of an OPC.
Advantages of One-Person Company
• Easy incorporation: Incorporation of an OPC is easy as there is a minimum number of members and a director is one as compared to a private company.
• Separate Legal Entity: It has a separate legal entity. Thereby, it can sue or be sued in its own name.
• Access to Funds: Banks and financial institutions prefer to grant loans to companies as compared to a sole proprietorship.
• Less compliance: The compliance requirement of an OPC is quite less as compared to a private or public company.
• No Board/General Meeting Required: Where in an OPC there is only one director there is no requirement of holding a board meeting. As there is only one member in an OPC, it is exempt from the provisions of the General Meeting.
• Speedy Decision making: The decision-making and implementation is speedy as there is only one member and usually there is only one director, so there is no conflict of opinion.
Disadvantages of One-Person Company
• Suitable for Small Businesses: The OPC structure is suitable for small businesses only. As the fund’s requirement of large-scale businesses cannot be met by a single member.
• Lack of Expertise: As the model is designed for small businesses, there is a lack of expertise in this model. The sole member (owner) manages the company therefore; the managerial expertise available to a private or public company is not available to an OPC.
• Ownership and Management: Generally, the sole member manages the company and there is no one to question, it can result in unethical business practices.
Procedure and Requirements for Setting up an OPC
The procedure and requirements for setting up a One Person Company (OPC) involve several steps and compliance measures. To establish an OPC, the first and foremost requirement is to have a sole shareholder who will be the sole director of the company. Here is a detailed explanation of the procedure and requirements for setting up an OPC:
Director Identification Number (DIN) and Digital Signature Certificate (DSC): The first step is to obtain a DIN and DSC for the proposed director of the OPC. The DIN can be obtained by filing an application online with the Ministry of Corporate Affairs (MCA), and the DSC can be obtained from a recognized certifying authority.
Name Reservation: The next step is to choose a unique name for the OPC and apply for its reservation. The proposed name should comply with the naming guidelines specified by the MCA. Once the name is approved, it remains reserved for 20 days.
Memorandum of Association (MOA) and Articles of Association (AOA): The OPC needs to prepare and file the MOA and AOA, which define the company’s objectives, operations, and internal regulations. These documents must be drafted in accordance with the Companies Act, 2013.
Share Capital: The OPC must determine the authorized and paid-up share capital at the time of incorporation. There is no minimum capital requirement for an OPC, allowing flexibility for entrepreneurs.
Registered Office: The OPC must have a registered office address within India. The address proof, such as utility bills or rental agreement, along with a No Objection Certificate (NOC) from the owner, is required during the registration process.
Incorporation Application: Once all the necessary documents are prepared, the OPC can file the incorporation application with the MCA. The application includes the required forms, along with the payment of prescribed fees.
Consent and Declaration: The sole shareholder and director of the OPC are required to provide their consent and sign the necessary declarations, affirming their eligibility and compliance with the requirements.
Certificate of Incorporation: Upon successful verification of the application and documents, the Registrar of Companies (ROC) will issue the Certificate of Incorporation. This marks the official formation of the OPC.
PAN, TAN, and Bank Account: After receiving the Certificate of Incorporation, the OPC can apply for a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN). These are essential for tax-related purposes. The OPC can also open a bank account in the name of the company.
Compliance Requirements: Once the OPC is incorporated, it must fulfill ongoing compliance requirements, such as maintaining proper books of accounts, conducting annual general meetings, filing annual financial statements, and complying with tax and regulatory obligations.
By following these procedures and meeting the requirements, entrepreneurs can successfully set up an OPC. It is advisable to seek professional guidance and assistance from a chartered accountant or company secretary to ensure compliance with all the legal and regulatory obligations throughout the process.